Daily Rate Update: March 5th-9th

U.S. job growth surged in February as the labor market continues to tighten, though wage growth cooled. The Bureau of Labor Statistics reported that Non-Farm Payrolls rose by 313,000 last month, well above the 210,000 expected. This was the largest gain since July 2016. December and January were revised higher by a total of 54,000. Big job gains were seen in construction followed by retail and professional and business services.

However, wage growth cooled rising just 0.1%, below the 0.2% expected, while year-over-year slowed to 2.6% from the 2.9 percent in January soothing fears of wage inflation. Within the report, the Unemployment Rate remained at 4.1 percent; the Labor Force Participation Rate rose to 63% from 62.7%. The U6 number, a measure of total unemployment, remained at 8.2%. Overall, it was a solid report.

President Trump is expected to announce tariffs today but some reports say it could be put off until tomorrow. The White House said yesterday that Mexico and Canada may get tariff exemptions along with some other countries while China warns of a trade war. The U.S. markets continue to get ebb and flow by the headlines out of Washington, D.C. The U.S. Bond market, a safe haven to uncertainty, does not appear to be swayed by the doom and gloom predictions many are making as it relates to tariffs.

Mortgage rates have now climbed nine consecutive weeks and hover near four-year highs. Freddie Mac reports that the 30-year fixed-rate mortgage rose three basis points this week to 4.46% with an average 0.5 point for the week ended March 8. A year ago the rate was 4.21%. Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage.

Fannie Mae reported its Home Purchase Sentiment Index (HPSI) for February as housing confidence declined last month from January. The HPSI fell 3.7 points to 85.8, reversing January’s increase. The net share of respondents who said it’s a good time to buy a home decreased, as did those who reported that now is a good to sell. The report went on to reveal that there was a weakened sense of job security.

The labor market continued to produce strong gains in February though the jobs created were concentrated in the service sector, which are typically not high-paying positions. ADP reports that private employers added 235,000 new workers last month, above the 193,000 expected while January was revised higher by 10,000 to 244,000. As mentioned, of the 235,000 workers hired in February, 198,000 were added in the service sector. Ahu Yildirmaz, vice president and co-head of the ADP Research Institutes said, “At this pace of job growth employers will soon become hard-pressed to find qualified workers.”

Mortgage rates continue to hover near four-year highs but when looking at rates going back 40 years, they are relatively low. The Mortgage Bankers Association reports that the 30-year fixed-rate conforming mortgage ($453,100 or less), was essentially unchanged in the latest week at 4.65% with a 0.58 point added on top. Mortgage rates have remained relatively low the past 10 years due in part to low inflation and as the Fed has been purchasing Mortgage Backed Securities in an effort to keep rates low.

The big news today was the resignation of President Trump’s top economic adviser Gary Cohn following disagreements over the tariff plans. President Trump has proposed a 25% tariff on imported steel and a 10% tariff on imported aluminum. Mr. Cohn wanted to host top CEOs at the White House to discuss their oppositions the tariffs, but the plan never came to fruition. Mr. Cohn said it was “an honor to serve my country and enact pro-growth economic policies to benefit the American people, in particular the passage of historic tax reform.”

Low supplies of homes for sale on the market, especially entry-level homes, continues to push home prices higher across the nation. CoreLogic reports that home prices, including distressed sales, rose 6.6% from January 2017 to January 2018. On a month-over-month basis, home prices were up 0.5%. Looking ahead, CoreLogic forecasts that home prices will increase by 4.8% from January 2018 to January 2019. In January, 48% of the top 50 markets were considered overvalued.

On Monday, top U.S. Republicans, including House Speaker Paul Ryan, urged President Trump not to go ahead with the tariffs. That sent Bond prices lower, yields higher and Stocks soaring as the Dow closed with a 336 point gain, representing a 430+ point reversal higher from the lows. This morning, Stocks are volatile having opened in positive territory only to fall into negative territory as volatility in the markets continues.

Get ready for slightly higher gas prices in the coming months as the spring and summer driving season will soon be underway. The national average price for a regular gallon of gasoline is at $2.52, relatively unchanged for the past two weeks. Jeanette Casselano of AAA says, “Typically, March brings more expensive pricing as days get longer, weather gets warmer and refinery’s gear up to switchover to pricier summer blends.”

Rising mortgage rates and an increase in home prices pushed affordability to its lowest point since 2009. Since the beginning of 2018, the 30-year fixed-rate mortgage increased 48 basis points while the cost to purchase a median priced home rose by $67. The average cost to purchase a median-priced home per month, which includes the monthly mortgage and insurance, rose to $1,141, the highest since 2009. However, those numbers are still better than the long-term averages.

Banks foreclosing on unpaid mortgages have continued to decline the past few years due in part to a stronger labor market, a growing economy and an uptick in home prices. ATTOM Data Solutions reports that American banks repossessed 292,000 homes in 2017, 379,000 homes in 2016 and 450,000 homes in 2015.

The service sector of the U.S. economy continues to turn in solid numbers as it has now grown 97 straight months in February. The ISM Service Index registered 59.5 last month, just below the 59.9 recorded in January. Within the report it showed that the new orders index rose, while the employment component decreased. In addition, the survey went on to say that the majority of respondents’ continue to be positive about business conditions and the economy.

U.S. Stocks suffered another blow yesterday after President Trump announced the U.S. will impose tariffs on steel and aluminum imports coming into the country. There will be a 25% tariff on steel and 10% on aluminum imports. The news sent Stocks sharply lower with the Dow Jones Industrial Average down by 600 points before closing 422 points lower. Fears of a trade war are bringing uncertainty, which Stocks loathe.

Consumer Sentiment hit its second highest level since 2004 last month spurred on by a strong labor market. The Consumer Sentiment Index hit 99.7 in the final reading in February, which was in line with estimates. Within the report, the current condition and expectations measures both increased. The report went on to say that the biggest share of households since 1998 said their finances had improved over the past 12 months.

Fed Chairman Powell spoke in front of the Senate yesterday and somewhat back-peddled from his comments on Tuesday. Mr. Powell said, “We don’t see evidence of a decisive move up in wages, there is no evidence the economy is overheating, fiscal policy will likely put upward pressure on inflation this year.” Part of the Fed’s unstated goal is to maintain market calm … by talking out of both sides of his mouth over the course of two days, Mr. Powell seemed to have missed that memo in his first public appearance.

Despite the recent chatter regarding inflation pressures, a key inflation gauge was unchanged in January, laying to rest the fears of increased interest rate hikes in 2018. The Fed’s favorite inflation gauge, the Core Personal Consumption Expenditure, remained at 1.5% year over year, below the target range of 2%. Fed Chairman Powell said today that he doesn’t see any strong evidence of significant wage growth but did say he could see wages rising soon.

Mortgage rates continued to climb this week though they remain historically low. Freddie Mac reports that the 30-year fixed-rate mortgage rose three basis points in the latest week to 4.43% with an average 0.5 in points and fees. Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Freddie went on to say that early indications are that housing demand remains robust to the recent rate increases.

Americans claiming first-time unemployment benefits fell to lows not seen since December 1969 in the latest week as the labor market continues to strengthen. Weekly Initial Jobless Claims fell by 10,000 in the latest week to 210,000, below the 227,000 expected. It was the 156th straight week that claims remained below the 300,000 mark, a level associated with a strong job market.